and that such directors are entitled to continue in office during the whole period for which they were nominated without qualification. As regards elected directors, where the Articles require a certain qualification, merely accepting office as a director and acting as such do not constitute an agreement to become a member of the Company, but only a contract to qualify by taking the required shares within the time specified by the Articles, or if no time is named, then within two months after appointment.1 The lapse of the time within which the director is bound to qualify only amounts to an offer to take shares, and no agreement to take them exists until the offer has been accepted, i.e. by placing the director on the register of shareholders, by resolving to allot the shares to him, or by his acting as to show that he has assumed that his offer has been accepted, and by both parties acting on that assumption. Mere lapse of time, however, will not turn the offer into a contract, and there is no contract unless the offer is accepted either expressly or by implication before the Company goes into liquidation.2 But if the clause is so framed as to make a director a shareholder immediately on the expiry of the time limit, he will be liable as such. it has been decided that a director was liable as a shareholder who accepted office in a Company where the Articles provided that if a director shall fail to acquire his qualification within a month, he shall be "deemed to have agreed to take the shares from the Company, and the same shall be forthwith allotted to him." If during the time specified within which to acquire shares the person appointed a director resigns, he cannot be placed on the list of shareholders, as the obligation to hold the shares ceases on resignation, and the obligation to acquire the shares is merely ancillary to the obligation to hold them. It is not necessary for a director to take his qualification shares from the Company. He is at liberty to get them from whom he 1 Act 1900, sec. 3 (1). 2 In re Issue Co., Hutchinson's case, 1894, 1 Ch. 226. Thus pleases. If, however, he accepts a present of them from the promoters or persons having contracts with the Company, he may be compelled to account for the value of the shares to the Company. Appointment.-A Company is not bound to accept the provisions in Table A with regard to the appointment of directors. Hence it is competent for a Company in the Articles of Association to specially provide for the manner in which the directors are to be appointed, the number of directors, and the qualification (if any) necessary. As it is thus obviously impossible here to consider the whole range of probable ways by which Companies may elect to appoint their directors, consideration will be given to the appointment of directors of Companies who have adopted the provisions of Table A,1 attention being drawn to points raised in connection with other Articles of Association which have formed the subject of a decision of the Court. In a large proportion of cases where the Table has not been adopted, it will be found that the appointment of directors is required by the Articles to be made on the same or similar lines to those contained in the Table. First Directors.—Article 52 provides: "The number of the directors and the names of the first directors shall be determined by the subscribers to the Memorandum of Association." Before this power can be exercised the Company must first be registered. Article 53 says that "until directors are appointed the subscribers of the Memorandum shall be deemed to be directors." If the subscribers to the Memorandum of Association all concur in the appointment of the first directors, it is not necessary that they should meet for the purpose of coming to their determination, a writing signed by them being sufficient. Where, however, the subscribers meet, the appointment is ruled by the vote of the majority. There must be present at the meeting a majority of the subscribers. There is no time fixed for the notice convening such a meeting. All the subscribers 1 For which see Appendix. must receive due notice. A notice of two days has been held sufficient. While the subscribers to the Memorandum can nominate the persons who are to be the first directors, no use can be made of their names as directors in a prospectus issued by or on behalf of the Company until the conditions specified in the Act of 1900 are observed. Subsequent Directors and Rotation of Directors.-The provisions regulating the rotation of directors and the appointment of new directors are contained in Articles 58 to 65, to which reference is made.1 If for any reason either the first meeting or the adjourned meeting, at which the election of directors ought to take place, as required by Article 62, does not proceed validly to fill up the places of the vacating directors, then they are to continue in office. The term "casual vacancy" in Article 64 means any vacancy in the directorate occurring in any manner other than by effluxion of time, such as death, resignation, or bankruptcy, or by the removal of a director as provided for in Article 65. The fact that a director, either as vendor or lessor or otherwise, enters into any contract or agreement with the Company, does not make him vacate his office; but he cannot vote as a director in respect of such contract or arrangement. Directors appointed for definite Period.-A Company the directors of which are appointed for a definite period has no inherent power to remove them before the expiration of that period. Removal of Directors.-If the Articles contain no power to remove directors before the expiration of their period of office, but authorise the shareholders by special resolution to alter any of the Articles, there must be a separate special resolution altering the Articles, so as to give power to remove directors before a resolution can be passed to remove any of them. It is incompetent to have the two resolutions running concurrently. Vacating of Office by Director.-In the case of Companies having special Articles of Association, provision is invariably 1 See Appendix. made for the vacating by a director of his office on the occurrence of certain events, such as his being absent from meetings of the board for a certain specified period, his becoming bankrupt or insolvent, his holding any other office or place of profit under the Company, and on his failure to duly obtain and maintain his qualification, if any. This last condition is now statutory.1 For Companies regulated by Table A, the conditions necessary to the vacating of office are specified in Article 57. Resignation of Director.-Where there is no provision in the Articles entitling a director to resign office, it is doubtful whether he can competently refrain from attending to the business of the Company. A director desiring to be freed from the responsibility of his office should send notice of his resignation to all the members of the Company. Effect to be given to Actings of Persons who have been improperly appointed Directors.-To prevent hardships which would undoubtedly arise if the actings of persons appointed directors were to be subsequently set aside, on the ground that for some reason or other their election was invalid, the Act of 18622 provides that "all appointments of directors, managers, or liquidators shall be deemed to be valid, and all acts done by such directors, managers, or liquidators shall be valid, notwithstanding any defect that may afterwards be discovered in their appointments or qualifications." This, however, only applies to acts done before the invalidity of their appointment is shown. When, however, their appointment has been shown to be invalid, their subsequent acts are not valid. Again, when the Articles of Association provide that "the business of the Company shall be conducted by not less than" a specified number of directors, the words are imperative, and not merely directory; consequently, a call made, or a forfeiture of shares declared, by less than the specified number of directors is invalid. But if there is a clause providing that continuing directors may act notwithstanding a vacancy in the board, 1 See Act 1900, sec. 3. 2 Sec. 67. this will validate acts done when the board has fallen below the minimum.1 The section in question is not confined in its application to dealings by the directors with the public, but applies equally to their dealings with the shareholders. Sale by Director to Company.-The mere fact that a person is a director of a Company does not preclude him from selling his property to the Company, nor from making the best bargain he can. He is entitled to say, "I have an article to dispose of. I am willing to sell it to you on the following terms and conditions." He may ask what price he pleases, and obtain what price he can, and he is under no obligation whatever to say what price he gave or has to give for the article in order to complete his title to it. But he is bound to disclose to the Company the fact that he is offering for sale his own property, or if it is not wholly his own, then what precisely is his interest in it. Should he not do so, the Company on ascertaining the fact may rescind the contract, or in their option hold the director to it. Director acting for Parties dealing with Company. A director should not act as solicitor or agent for a person in a transaction with the Company, as subsequently the Company may repudiate the contract thus made. A Director is not entitled to receive for himself any secret Commission in respect of his Position.—A director is not entitled to receive for himself any secret commission, or any present in respect of anything he may do as a director of the Company. His position in this respect is the same as a trustee, and the law with regard to trustees has thus been stated: "Whenever it can be shown that a trustee has so managed matters as to obtain an advantage, whether in money or money's worth, to himself personally through the execution of his trust, he will not be permitted to retain it, but will be compelled to make it over to his constituents." 2 Directors may receive a 1 In re Alma Spinning Co., 1880, 16 Ch. D. 681. 2 Per Lord Young in Huntingdon Copper Co. v. Henderson, 1877, 4 R. 294. |